publish time

08/07/2023

author name Arab Times

publish time

08/07/2023

WHILE more OPEC+ production cuts are coming into effect, more crude oils are entering the market from various sources. This is not helping the oil price reach the unannounced target level of $80 per barrel. USA, Canada, Brazil and Norway are pushing the crude oil production , especially the US producers who are earning as much as possible for their barrels, regardless of the price level being $45 or $75 and above, as they are free and not committed to any budget constraints, unlike the OPEC+ producers. In addition, Iran is pushing its production to the highest level with export rate reaching about 1.8 million barrels to China, Venezuela, Syria, African and Latin American countries, along with transshipment in the middle of the sea to unknown destinations.

Kamel Al-Harami

Iran’s production rate is reaching close to three million barrels per day, the highest since 2018, with the USA administration doing some sort of eye blinding. This is in contrast to OPEC’s desire and its efforts with its members to curtail crude oil production, particularly with Russia to commit its production level, as agreed with OPEC+. It cannot do so, as it faces boycott from G7 and a forced price level of $60 per barrel for its Ural crude oil. It perhaps can seek support and sympathy, if it does not strictly adhere to their commitment.

With OPEC’s volunteer oil cuts not impacting oil prices, despite its efforts, the economic situation falls into the demand situation, with China being the main player to move the oil price to a level of $80 per barrel. Even though it has today edged up to $77, it is not enough for OPEC producers, as most of its members need a level of $80 and above to breakeven with the annual budget. Otherwise, they have to cut down on their spendings and cancel infrastructure projects. It seems like a nonstop hidden dilemma between OPEC+ producers and other oil producers that can run their upstream efficiently every day and try to minimize cost by finding ways and means to become more cost effective, and upgrade on their earnings as well as have a free hand to do so.

This is unlike OPEC+, which relies on others’ know-how and technology without much rewards for the operators, which raises concerns for the owners. If we are not in command of our wells and the latest technology, our costs will always be much higher than others. It will be a hard task for the oil price to hit the desired level of $80, but OPEC+ members are fully committed to sticking to their quotas by every barrel, and full sort of uplift in oil demand, hoping for China to witness some sort of economic pickup. Otherwise, there will be a hard struggle for oil price today and next year with more oils coming into the markets, despite the ongoing war in Ukraine and the boycott of Russian oils.

By Kamel Al-Harami
Independent Oil Analyst

Email: [email protected]